More Creative Fiction In Warner Music Royalty Statements

from the going-backwards? dept

Fri, Dec 4th 2009 11:11am — Mike Masnick

With Tim Quirk's story about his fictional royalty statements from Warner Music, more people are beginning to talk about these kinds of things. Bob Lefsetz points to another report of a royalty statement of an unrecouped artist (and former major label exec), David Bach, who notes with some surprise that on his last royalty statement from Warner Music, the amount the band owed had gone up. In other words, the royalties that the band had accrued had somehow decreased:

In May of 2007, I wrote a post about the wacky world of record company royalty recoupment.
This week (Nov.-2009) - I received another royalty statement.
Wow!...we've gone backwards!
In May 2007, we were unrecouped to Warner Brothers to the tune of $174,073.84
Now...our balance is up to $174,717.56!
Talk about "pushing forward back!".
How is this possible?
Good question!

Now, to be fair, Bach still says that he was happy with his major record deal, in noting that it was effectively an "unsecured loan" in that he doesn't lose his house if it never gets recouped. He conveniently leaves out the clear explanation that the label is still making money based on the wholesale price of the album, which is many times over what royalties are due to recoup the advance. He also leaves out the fact that while it was an "unsecured loan," it also involved him giving up basically all rights to the music created under that deal forever (or, as the industry prefers, forever minus a day). Not sure that's really that great a deal. With a real loan, you don't also give up the lender something to keep forever. That's not a loan, it's a transaction.

Still, the bigger issue is this idea that the amount that still needs to be recouped has gone backwards over time. It again raises serious questions about how Warner Music accounts for what it owes bands, whether they're recouped or unrecouped. I recognize that accounting may be a boring topic, but it's an important one that Warner has contractual obligations to keep accurate. And... plenty of other businesses with similar challenges seem to be able to keep track of what royalties are owed to whom. Why can't Warner Music keep it straight?

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Filed Under: accounting, david bach, royalties, tim quirk
Companies: warner music group

20 Comments

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Hephaestus (profile), 4 Dec 2009 @ 12:00pm

You suck .... but you do have potential ...
You suck but you do have potential ...

"Some Enigma employees told me years later that they heard that Wes signed us with the intent to “shelf” us as to limit Stryper’s competition

“Shelving” is an old-school record industry tactic of tying up a band legally through a record contract to take them off the market."

... so we are going to offer you a record deal and be nice to you until it no longer suits us to do so.
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Jesse, 4 Dec 2009 @ 12:04pm

It seems like the general idea is to ensure that artists never pay back the lost money. I mean certainly there are many artists that must make enough in royalties to cover the costs. But by making the costs really high (and probably wasteful) and fudging the accounting, they ensure they never have to pay out royalties.

It's also worth noting that under this system, it is technically not the labels investing in the artists...rather than artists investing in themselves. I mean, none of the the labels profit goes into repaying the investment, right?
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harbingerofdoom (profile), 4 Dec 2009 @ 12:07pm

someone explain to me how this is not a titleVIII sox violation?
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Brooks (profile), 4 Dec 2009 @ 12:12pm

Interest
So the royalty thing is crazy.

But isn't the obvious answer "interest", if it's an unsecured loan?
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Anonymous Coward, 4 Dec 2009 @ 12:14pm

How is it possible? Wow, it's pretty easy, actually.

I would suspect that at a certain point, the record company had to process returns (unsold merchandise) that the stores no longer wanted to stock. Now, when they sold it off to the stores, they may have debited the band account with the sales, and now with returns, they have to credit back some of those sales.

With a difference of about $640, that isn't at all outside the realm of possiblity.

It's another great moral outrage story, but there isn't much to it. Mr Bach sure isn't complaining about the rock star lifestyle he got to lead on the company dime for a certain period of time.
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Bubba Gump (profile), 4 Dec 2009 @ 12:34pm

Re:
Sorry, I don't buy your explanation.
Sure, $640 sounds like a small enough number until you consider that EACH album returned should only ding the unrecouped amount by a few pennies (since that's all the royalties seem to be for these unrecouped bands).

So, your "only" $640 turns into (let's say) 6,400 albums returned (WITH ZERO ADDITIONAL SALES OVER THAT TWO YEAR PERIOD) at $.10 per album.

I eagerly await your response.
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Hephaestus (profile), 4 Dec 2009 @ 12:37pm

Re:
Sarbanes Oxley - Title VIII contains .....

Sec. 801. The tile of this section.
Sec. 802. Criminal penalties for altering documents.
Sec. 803. Debts nondischargeable if incurred in violation of securities fraud laws. criminal fraud.
Sec. 806. Protection for employees of publicly traded companies who provide evidence of fraud.
Sec. 807. Criminal penalties for defrauding shareholders of publicly traded companies.

SOX is about defrauding investors and misrepresenting your publicly traded company to investors. Scamming the poor artists doesnt enter into it.

The business model of the record industry is, to make money off musicians while paying them as little as possible, and to contractually lock up as many artists as possible so there is no industry external competition. Everyone knows this and so there is no deceit.
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Alan Gerow (profile), 4 Dec 2009 @ 12:47pm

Re: Interest
It's not a loan. The artist is saying it is LIKE a loan.
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harbingerofdoom (profile), 4 Dec 2009 @ 1:46pm

Re: Re:
i should not have said title VIII

but, regardless... im not talking about them ripping off artists and i agree that SOX would have nothing to do with that specific aspect of it.

what im wondering is how exactly the fact that they are knowingly using false reporting information not a sox violation.

huge difference as one is pertinent to what im saying and one is not.
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Anonymous Coward, 4 Dec 2009 @ 2:06pm

Re: Re:
It depends on the contract. Is there is restocking or handling fee passed on? Remember, the "couple of pennies" is only on the plus side. On the negative side, there could be plenty of costs invovled in disposing of unwanted CDs or putting them back in the warehouse. So even if the fee is 50 cents a unit, plus your 10 cents per, it only takes 1000 units total.

Consider a chain store returning stuff. 1000 units isn't much.
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dorp, 4 Dec 2009 @ 3:57pm

Re:
So at this point of time it's pretty obvious that you are a paid shill. Care to tell us how much your time costs? Are you going to start making more meaningful counter-arguments if your bosses pay you more? Or are you just paid per response regardless of the idiocy you spew? At least angry dude was independently smart, you are just a moron typing for a coin.
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Luci, 4 Dec 2009 @ 5:16pm

Actually, Mike, he didn't leave out about them still making money off his music. He wrote:

'Warner Bros. still makes money off our back catalog...but yet finds ways to implement "creative accounting" to send us backwards.'
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Brooks (profile), 4 Dec 2009 @ 5:45pm

Re: Re: Re:
SOX is only about financial reporting, which most emphatically does not mean all reports that have to do with finances. Financial reporting means things filed with the SEC, with investors, etc. It has no bearing whatsoever on internal reporting, accounting, operations, taxes, etc. That said, anytime anyone knowingly falsifies data, especially for contractual or financial purposes, it's called fraud. That really doesn't look (to me) to be the case here, but there's no need to drag SOX into this.
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Brooks (profile), 4 Dec 2009 @ 5:45pm

Re: Re: Interest
Um, ok. So maybe it's just LIKE interest?
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Anonymous Coward, 4 Dec 2009 @ 6:07pm

Re: Re: Re:
So you followed a stupid assumption with an explanation that is still based on stupid assumption.

The royalties are calculated based on sell-through, not deliveries. That way any returns have zero effect on the amount of royalties.
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herodotus (profile), 4 Dec 2009 @ 6:38pm

"So at this point of time it's pretty obvious that you are a paid shill."

Nah, he's a paid shill wannabe at best.

I've met lots of people like him over the years: people who have embraced the most wretched practices of this wretched industry because they think it makes them 'hard nosed realists' who have an edge on all of the naive artistic idealists who don't have what it takes to 'play ball' with 'the big boys'.

Now his hard nosed reality is going up in smoke and the resulting cognitive dissonance is making him go a bit loopy.

He deserves pity more than anything.
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Anonymous Coward, 4 Dec 2009 @ 8:33pm

Re: Re: Re: Interest
The profit the record company keeps from sales are the interest.
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Hephaestus (profile), 7 Dec 2009 @ 6:56am

Re: Re: Re: Re:
Nicely worded ....
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Killer_Tofu (profile), 7 Dec 2009 @ 7:05am

IRS
Why does the IRS not care about all the fuzzy accounting involved with these large corporations.
Its a lot of lost revenue for them.
They should investigate.
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Louis (profile), 20 Dec 2009 @ 11:09am

Re: IRS
They should, but the politicians won't let them. Don't forget that those politicians are "bribed" by the music industry... So I would guess that you can figure it out. :)
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